Summary
To some degree at least, yesterday's stock-market problem was the likely
result of domestic political considerations. Today, it is terrorism of the
international variety. Both represent what I define as "exogenous influences."
The market's reaction is a good indication of how little attention investors
are paying to the old "what can come out of left field" syndrome.
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On a few occasions in recent months, I've suggested that the markets were
assuming a Bush second term a virtual fait accompli, that this would likely
change, and when it did, the markets would take it as a negative. I believe
some of the phenomenon began showing up in earnest yesterday, possibly triggered
by John McCain's comment in the morning that he wouldn't rule out the second
slot on a Kerry ticket. (McCain backtracked on this later in the day.)
As for the markets' introspection lately about potential terrorism, well,
forget about that -- there hasn't been any!
The initial reaction to events today in Madrid more or less proves this,
especially when it became more evident that the bombings there did not fit the
usual modus operandi of Basque separatists/terrorists. Remember that Spain
was a European country backing the United States in the war in Iraq. (As an
aside, try to imagine what the market response would have been had the bombs
killed all these people a US shopping center!)
In a strange way, a major stock-market setback coming now actually may be
good for Bush, a lot better than it coming, say, between the Fourth of July
and Labor Day. Greenspan has badly screwed up the timing of his Presidential
election cycle machinations on behalf of Bush, leaving the stock market
increasingly vulnerable to bad things at a bad time from a political perspective.
As I write this, stocks have come far off the day's lows, with some
proxies now up on the session. The worst imaginable outcome for the bulls today
would be to have this strength segue into another bad close. (I think there's a
decent chance this will be the outcome.)
Through yesterday, my stock-market tracking group was down an average
3.3% for the week. Of growing interest (and concern) I think, is that as of
yesterday's close, the group was up, on average, only 0.8% for the year, although
it showed a somewhat fatter 1.7% median gain. Among individual components, the
DJIA and the NASDAQ 100 are in the red.
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SELECTED STOCK-MARKET MEASURES --
WEEK AND YEAR TO DATE THROUGH 3/10/04
(Ranked in Year-To-Date Order)
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To 3/10 From
Recent Highs 12/31 ------------
03/10 ------------ 2003 03/05 12/31
Close Close Date Close Close Close
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Russ. 2000 575 602 01/26 557 -4.2% +3.2%
Value Line 371 385 03/05 363 -3.6% +2.2%
NYSE Comp. 6592 6780 03/05 6464 -2.8% +2.0%
Wil. 5000 10979 11314 03/05 10800 -3.0% +1.7%
S&P 500 1124 1158 02/11 1112 -2.9% +1.1%
DJIA 10297 10738 02/11 10454 -2.8% -1.5%
NASDAQ 100 1418 1554 01/26 1468 -3.7% -3.4%
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Average -3.3% +0.8%
Median -3.0% +1.7%
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Until very recently, I believe it has been the assumption that no one on
the buy side would want to show any cash to speak of at quarter-end. Were the
market to slip into broader negative territory, window dressing might push
some investors in the opposite direction.
The major market bellwethers have not been at or below respective 200-day
moving averages since not long after the rally off the March 2003 lows
commenced, almost exactly one year ago. Recent maximum apogee from the 200-day
average occurred around the week ended 2/13, although this was down a good bit
from a higher level of divergence late last summer. Owing to this week's price
declines, the gap has narrowed a fair amount since last Friday, as the
following table indicates.
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DJIA, NASDAQ COMPOSITE AND S&P 500 CLOSING
PRICES ON SELECTED DATES VERSUS RESPECTIVE
20-DAY, 50-DAY AND 200-DAY MOVING AVERAGES
(In Percent or Portion Thereof)
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DJIA Vs. NAZ Comp. Vs. S&P 500 Vs.
------------- ------------- -------------
Date 20D 50D 200D 20D 50D 200D 20D 50D 200D
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2004
03/10 -3 -3 6 -4 -5 5 -2 -1 7
03/05-0.3 0.4 9 0 -0.6 10 0.8 2 11
02/06 0.5 2 11 -2 2 13 0.6 3 11
01/02 2 5 12 1 2 14 2 4 10
2003
12/05 0.9 2 9 -0.1 0.8 15 0.9 2 9
11/07 0.6 2 10 2 4 22 0.7 2 10
10/03 1 2 10 1 5 21 1 3 10
09/08 2 4 11 6 9 26 3 4 12
=================================================
03/14 0.6 -3 -7 2 -0.2 -0.7 0.4 -3 -7
2002
10/09 -7 -13 -23 -7 -12 -30 -7 -12 -24
07/16 NA -12 -14 NA -11 -22 NA -12 -18
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If the pullback in progress is the one that goes back to do an
approximate test of the 200-day proxy, the table below shows what this would look like
as of yesterday's closing values ("0%" columns).
A couple levels worth keeping track of from a historical perspective
(broken out in the above table) are:
(1) 200-day moving average relationships at roughly the beginning of the
current cyclical rally (3/14/03 in the table);
(2) 200-day moving average relationships at the October 2002 lows
(10/9/02 in the table.
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200-DAY MOVING-AVERAGE VIOLATIONS --
VALUES PROJECTED FROM CLOSE ON 03/10/04
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% Decline From
MA Violation/ 03/10 Close At
Resulting Price Violation Of:
03/10 --------------- -----------------
Measure Close 0% 3% 6% 0% 3% 6%
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DJIA 10297 9747 9455 9162 5.3 8.2 11.0
NAZ Comp. 1964 1872 1816 1760 4.7 7.5 10.4
S&P 500 1124 1049 1018 986 6.7 9.4 12.3
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